-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, RV4qNW74z4Mdh79Qej0QNqfQOcexwndZFrYfX6Xq7NPhxWxgfyskRVL/XKg5ApBU OCpgF8Z5wpHkZZKdQmqj6A== /in/edgar/work/20000606/0001019687-00-000761/0001019687-00-000761.txt : 20000919 0001019687-00-000761.hdr.sgml : 20000919 ACCESSION NUMBER: 0001019687-00-000761 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000429 FILED AS OF DATE: 20000606 FILER: COMPANY DATA: COMPANY CONFORMED NAME: HOT TOPIC INC /CA/ CENTRAL INDEX KEY: 0001017712 STANDARD INDUSTRIAL CLASSIFICATION: [5990 ] IRS NUMBER: 770198182 STATE OF INCORPORATION: CA FISCAL YEAR END: 0130 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-28784 FILM NUMBER: 649520 BUSINESS ADDRESS: STREET 1: 18305 EAST SAN JOSE AVENUE CITY: CITY OF INDUSTRY STATE: CA ZIP: 91748 BUSINESS PHONE: 6268394681 MAIL ADDRESS: STREET 1: 18305 EAST SAN JOSE AVENUE CITY: CITY OF INDUSTRY STATE: CA ZIP: 91768 10-Q 1 0001.txt HOT TOPIC, INC. SECURITIES AND EXCHANGE COMMISSION WASHINGTON, DC 20549 FORM 10-Q (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE - SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended April 29, 2000 --------- ---- OR TRANSITION REPORT PURSUANT TO SECTION 13 OR l5(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to ------------- -------------. COMMISSION FILE NUMBER: 0-28784 HOT TOPIC, INC. --- ------ ---- (Exact name of Registrant as specified in Its Charter) CALIFORNIA 77-0198182 - ---------- ---------- (State of Incorporation) (IRS Employer Identification No.) 18305 EAST SAN JOSE AVE., CITY OF INDUSTRY, CA 91748 - ----- ---- --- ---- ----- ---- -- --------- -- ---------- (address of principal executive offices) (Zip Code) (Telephone number of registrant) (626) 839-4681 ----- -------- Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No - APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares outstanding of the issuer's common stock as of the latest practicable date: June 2, 2000 - 9,868,883 shares, no par value. - ---------------------------------------------- HOT TOPIC, INC. INDEX TO FORM 10-Q Page No. PART I. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited): Consolidated Balance Sheets - April 29, 2000 and January 29, 2000 3 Consolidated Statements of Income for the 13 weeks ended April 29, 2000 and May 1, 1999 4 Consolidated Statements of Cash Flows for the 13 weeks ended April 29, 2000 and May 1, 1999 5 Notes to Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7-9 Item 3. Quantitative and Qualitative Disclosure about Market Risk 9 PART II. OTHER INFORMATION 9 SIGNATURE PAGE 9 2 HOT TOPIC, INC. and SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (Unaudited)
April 29, 2000 Jan 29, 2000(a) --------------- --------------- ASSETS Current Assets: Cash and cash equivalents $ 31,425,000 $ 39,550,000 Inventory 20,020,000 15,367,000 Prepaid expenses and other 3,336,000 1,580,000 Deferred tax asset 721,000 721,000 --------------- --------------- Total current assets 55,502,000 57,218,000 Leaseholds, fixtures and equipment: Furniture, fixtures and equipment 26,816,000 25,396,000 Leasehold improvements 23,138,000 21,419,000 --------------- --------------- 49,954,000 46,815,000 Less accumulated depreciation 16,733,000 15,094,000 --------------- --------------- Net leaseholds, fixtures and equipment 33,221,000 31,721,000 Deposits and other assets 82,000 83,000 --------------- --------------- Total Assets $ 88,805,000 $ 89,022,000 =============== =============== LIABILITIES AND SHAREHOLDERS' EQUITY Current Liabilities: Accounts payable $8,241,000 $6,215,000 Accrued payroll and related expenses 5,970,000 8,452,000 Accrued sales and other taxes payable 851,000 638,000 Income taxes payable 163,000 4,289,000 Current portion of capital lease obligations 59,000 60,000 --------------- --------------- Total current liabilities 15,284,000 19,654,000 Deferred rent 1,181,000 1,104,000 Capital lease obligations, less current portion 164,000 171,000 Deferred tax liability 816,000 816,000 Shareholders' equity Common shares, no par value; 50,000,000 shares authorized; 9,834,791 and 9,660,844 issued and outstanding at April 29, 2000 and January 29, 2000, respectively 42,301,000 40,668,000 Deferred compensation - (7,000) Retained earnings 29,059,000 26,616,000 --------------- --------------- Total shareholders' equity 71,360,000 67,277,000 --------------- --------------- Total liabilities and shareholders' equity $ 88,805,000 $ 89,022,000 =============== ===============
(a) - The balance sheet at Jan. 29, 2000 is derived from the audited financial statements at that date. See accompanying notes. 3 HOT TOPIC, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME (Unaudited) First Quarter (13 weeks ended) ---------------------------------- April 29, 2000 May 1, 1999 -------------- -------------- Net sales $ 44,839,000 $ 28,286,000 Cost of goods sold, including buying, distribution and occupancy costs 28,070,000 18,540,000 -------------- -------------- Gross margin 16,769,000 9,746,000 Selling, general and administrative expenses 13,312,000 8,965,000 -------------- -------------- Operating income 3,457,000 781,000 Interest income-net 421,000 219,000 -------------- -------------- Income before income taxes 3,878,000 1,000,000 Provision for income taxes 1,435,000 365,000 -------------- -------------- Net income $ 2,443,000 $ 635,000 ============== ============== Net income per share Basic $ 0.25 $ 0.07 Diluted $ 0.23 $ 0.07 Weighted average shares outstanding Basic 9,721,000 9,242,000 Diluted 10,508,000 9,424,000 See accompanying notes. 4 HOT TOPIC, INC. and SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (Unaudited)
Year-to-date (13 weeks) ended ---------------------------------- April 29, 2000 May 1, 1999 -------------- -------------- Net income $ 2,443,000 $ 635,000 Adjustments to reconcile net income to net cash flows used in operating activities: Depreciation and amortization 1,772,000 1,211,000 Deferred rent 77,000 144,000 Deferred compensation 7,000 9,000 Loss on disposal of fixed assets 14,000 3,000 Changes in operating assets and liabilities: Inventory (4,653,000) (2,527,000) Prepaid expenses and other (1,755,000) (865,000) Accounts payable 2,026,000 2,268,000 Accrued payroll and related expenses (2,482,000) (363,000) Accrued sales and other taxes payable 213,000 205,000 Income taxes payable (4,126,000) (1,654,000) -------------- -------------- Net cash used in operating activities (6,464,000) (934,000) Investing Activities: Purchases of property and equipment (3,286,000) (4,319,000) -------------- -------------- Net cash used in investing activities (3,286,000) (4,319,000) Financing Activities: Payments on capital lease obligations (8,000) (7,000) Repurchase common shares - (1,065,000) Proceeds from exercise of stock options 1,633,000 1,000 -------------- -------------- Net cash provided by (used in) financing activities 1,625,000 (1,071,000) -------------- -------------- Decrease in cash and cash equivalents (8,125,000) (6,324,000) Cash and cash equivalents at the beginning of period 39,550,000 24,574,000 -------------- -------------- Cash and cash equivalents at the end of period $ 31,425,000 $ 18,250,000 ============== ============== Supplemental Information: Cash paid during the period for interest $ 7,000 $ 4,000 Cash paid during the period for income taxes $ 5,816,000 $ 2,018,000
See accompanying notes. 5 HOT TOPIC, INC. and SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1. Organization and Basis of Presentation: --------------------------------------- Hot Topic, Inc. (the "Company") is a mall-based specialty retailer of music-licensed and music-influenced apparel, accessories and gift items for young men and women principally between the ages of 12 and 22. At the end of the quarter (April 29, 2000), the Company operated 224 stores in 43 states throughout the United States. The information set forth in these financial statements is unaudited except for the January 29, 2000 Balance Sheet. These statements have been prepared in accordance with generally accepted accounting principles for interim financial information, the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments, consisting only of normal recurring accruals, necessary for a fair presentation have been included. The results of operations for the 13 weeks ended April 29, 2000 are not necessarily indicative of the results that may be expected for the year ending February 3, 2001. For further information, refer to the financial statements and notes thereto included in the Company's Annual Report on Form 10-K for the year ended January 29, 2000. NOTE 2. Net Income Per Share: --------------------- The Company computes net income per share pursuant to Statement of Financial Accounting Standards Board No. 128 "Earnings Per Share" (Statement No. 128). Basic net income per share is computed based on the weighted average number of shares outstanding for the period. Diluted net income per share is computed based on the weighted average number of common and potentially dilutive common stock equivalents outstanding for the period. 6 ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Management's discussion and analysis should be read in conjunction with the Company's Consolidated Financial Statements and the Notes related thereto. RESULTS OF OPERATIONS 13 Weeks Ended April 29, 2000 (First Quarter of Fiscal 2000) - ------------------------------------------------------------ Compared to 13 Weeks Ended May 1, 1999 (First Quarter of Fiscal 1999) - --------------------------------------------------------------------- Net sales increased $16,553,000, or 58.5%, to $44,839,000 during the first quarter of fiscal 2000 from $28,286,000 during the first quarter of fiscal 1999. The increased net sales in the first quarter of fiscal 2000 were attributable to an increase in the number of stores, and to a 24.1% increase in comparable store sales as compared to the first quarter of fiscal 1999. Net sales for the 67 stores not yet qualifying as comparable stores contributed approximately $10,150,000 of the increase in net sales. The comparable store sales increase of 24.1% contributed approximately $6,400,000 of the increase in net sales. In the first quarter of fiscal 1999, comparable store sales increased by 15.3%. Sales of apparel category merchandise, as a percentage of total net sales, were 50% in the first quarter of 2000 compared to 47% in the first quarter of 1999. Gross margin increased approximately $7,023,000 to $16,769,000 during the first quarter of fiscal 2000 from $9,746,000 during the first quarter of fiscal 1999. As a percentage of net sales, gross margin increased to 37.4% during the first quarter of fiscal 2000 from 34.5% in the first quarter of fiscal 1999. The increase in gross margin as a percentage of net sales reflects an increase in merchandise margins and the leveraging of occupancy expenses by the higher average net sales per store, both offset in part by higher distribution costs. The Company's merchandise margins, as a percentage of sales, were approximately 1.2% higher in the first quarter of 2000 compared to the first quarter of 1999, principally from an average higher initial mark up and lower shrinkage. As a percentage of sales, distribution costs increased in the first quarter of fiscal 2000 compared to the first quarter of fiscal 1999, principally from higher rent expense for the new distribution center that the Company moved into during the second quarter of fiscal 1999. Selling, general and administrative expenses increased approximately $4,347,000 to $13,312,000 during the first quarter of fiscal 2000 from $8,965,000 during the first quarter of fiscal 1999, but decreased as a percentage of net sales to 29.7% in the first quarter of fiscal 2000 from 31.7% in the first quarter of fiscal 1999. The decrease as a percentage of net sales was primarily attributable to a reduction of general and administrative expense as a percentage of net sales due to the operating leverage achieved through the higher average sales per store. Operating income increased approximately $2,676,000 to $3,457,000 during the first quarter of fiscal 2000 from $781,000 during the first quarter of fiscal 1999. As a percentage of net sales, the operating income was 7.7% in the first quarter of fiscal 2000 compared to 2.8% in the first quarter of fiscal 1999. Interest income, net, increased approximately $202,000 to $421,000 in the first quarter of fiscal 2000 from $219,000 in the first quarter of fiscal 1999, principally due to higher average cash balances. 7 LIQUIDITY AND CAPITAL RESOURCES Historically, as well as during the first quarter of fiscal 2000, the Company's primary uses of cash have been to finance store openings and purchase merchandise inventories. The Company has historically satisfied its cash requirements principally from cash flows from operations, and in earlier years also from proceeds from the sale of equity securities. Cash flows used in operating activities were ($6,464,000) and ($934,000) in the first quarter of fiscal 2000 and 1999, respectively. The increase in cash flows used in operating activities in the first quarter of fiscal 2000 was primarily due to the increase in inventories, payments of bonuses earned in fiscal 1999 and payment of income taxes, all net of an increase in net income. Cash flows used in investing activities were ($3,286,000) and ($4,319,000) in the first quarter of fiscal 2000 and 1999, respectively. Cash flows used in investing activities relate primarily to store openings, computer hardware and software and, in 1999, also to the construction, equipment, fixtures and furniture for the Company's new headquarters and merchandise distribution facility. The Company opened 12 and 10 stores in the first quarter of fiscal 2000 and 1999, respectively. Cash flows provided by (used in) financing activities were $1,625,000 and ($1,071,000) in the first quarter of fiscal 2000 and 1999, respectively. In the first quarter of fiscal 1999, the company used $1,065,000 to repurchase 69,000 shares of its Common Stock. In addition, $1,633,000 was received on the exercise of stock options in the first quarter of fiscal 2000 compared to $1,000 in the first quarter of fiscal 1999. The Company believes that its current cash balances and cash generated from operations will be sufficient to fund its operations and planned expansion through fiscal 2000. SEASONALITY The Company's business is subject to seasonal influences, with heavier concentrations of sales during the Christmas holiday, back-to-school season, the Halloween holiday and other periods when schools are not in session. The Christmas holiday season remains the Company's single most important selling season. As is the case with many retailers of apparel, accessories and related merchandise, the Company typically experiences lower net sales during the first fiscal quarter. The Company does not believe that inflation has had a material adverse effect on its net sales or results of operations. The Company has generally been able to pass on increased costs related to inflation through increases in selling prices. STATEMENT REGARDING FORWARD LOOKING DISCLOSURE Certain sections of this Quarterly Report on Form 10-Q, including the preceding "Management's Discussion and Analysis of Financial Condition and Results of Operations," contain various forward looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the "Securities Act"), and Section 21E of the Exchange Act, which represent the Company's expectations or beliefs concerning future events. These forward looking statements involve risks and uncertainties, and the Company cautions that these statements are further qualified by important factors that could cause actual results to differ materially from those in the forward looking 8 statements, including, without limitation, the sufficiency of the Company's working capital and cash flows from operating activities, the implementation and management of the Company's growth strategy, the demand for the merchandise offered by the Company, the ability of the Company to obtain adequate merchandise supply, the ability of the Company to gauge the fashion tastes of its customers and provide merchandise that satisfies customer demand, the effect of economic conditions, the effect of severe weather or natural disasters, and the effect of competitive pressures from other retailers as well as other risks detailed from time to time in the Company's SEC reports, including the Company's Annual Report on Form 10-K for the fiscal year ended January 29, 2000. ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK Not applicable. PART II. - OTHER INFORMATION Items 1 - 5 are not applicable. Item 6 - Exhibits and Reports on Form 8-K (a) Exhibits 27.1 Financial Data Schedule (b) Reports on Form 8-K No reports on Form 8-K were filed during the period. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Hot Topic, Inc. (Registrant) Date: 6/5/2000 /s/ Orval D. Madden -------- --- ----- -- ------ Orval D. Madden Chief Executive Officer (principal executive officer) Date: 6/5/2000 /s/ Jay A. Johnson -------- --- --- -- ------- Jay A. Johnson Chief Financial Officer (principal financial and accounting officer) 9 EX-27 2 0002.txt FINANCIAL DATA SCHEDULE
5 1 3-MOS FEB-03-2001 JAN-30-2000 APR-29-2000 31,425,000 0 0 0 20,020,000 55,502,000 49,954,000 16,733,000 88,805,000 15,284,000 0 0 0 42,301,000 29,059,000 88,805,000 44,839,000 44,839,000 28,070,000 28,070,000 13,312,000 0 0 3,878,000 1,435,000 0 0 0 0 2,443,000 0.25 0.23
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